Merlo lets everyone know why PBM isn't going anywhere

WHAT IT MEANS AND WHY IT'S IMPORTANT — With all the talk among the investment community and press about what CVS Caremark should do with its PBM business, it really comes as little surprise that president and CEO Larry Merlo hit the topic head on during Thursday's first-quarter conference call — insisting that there are no plans to split the company.

(THE NEWS: CVS off to ‘good start,’ Merlo says; company committed to PBM biz. For the full story, click here)

Merlo told analysts at the start of the conference call, "Despite conjecture in the marketplace, there are no plans to split up the company. We strongly believe that we have the right assets in place to ensure our long-term success in this changing healthcare environment."

Merlo's comments came on the heels of much chatter among the investment community and press about whether or not CVS Caremark should spin off the PBM business. And some critics have argued that the two divisions of the company are worth more apart than together.

However, those who insist that CVS Caremark's parts are worth more than their sum should take a closer a look at how the various parts of the company's integrated model come together — retail, mail order, PBM, specialty and retail clinics. Each component complements the others, and the PBM is a big part.

Echoing this sentiment, J.P. Morgan issued a report in March — on the fourth anniversary of the CVS Caremark merger — that stated: "In our view, the strategy behind the merger is not inherently flawed, and we believe that Caremark has proven to be a valued asset to the retail pharmacy operation. As such, we think it is unlikely the company would voluntarily spin off the Caremark asset in the near term. That said, while some have argued in favor of separating the two companies to unlock value, we note that a sale would likely have sizeable FTC concerns, while a spin has the potential for negative synergies on both segments."

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